[This is an update to our previous blog post here]
Merely moments after being sworn in as our nation’s 45th President, President Trump’s HUD indefinitely suspended the MIP reduction of 25basis points, that was scheduled to begin on January 27th.
Month: January 2017
HUD Lowers Mortgage Insurance Premiums for Most FHA Loans
[UPDATE – According to Housing Wire, This reduction has been indefinitely suspended mere minutes after Donald J. Trump was sworn in as the 45th President of the United States of America.]
The Department of Housing and Urban Development announced on Monday that they plan to reduce the Mortgage Insurance Premium for FHA mortgage loans. Since 2012, the Federal Housing Administration’s(FHA) Mutual Mortgage Insurance(MMI) Fund has gained $44 billion, and is now 32 basis points above the 2 percent threshold level required by Congress. This is ~$13 billion more than projected for Fiscal Year 2017 in an Actuarial Review of the MMI Fund for Fiscal Year 2012.
The FHA Pays It Forward
“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” … “This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.” – Julián Castro, HUD Secretary
According to the FHA, the reduction will return the Mortgage Insurance Premium nearly to levels seen before the housing bubble crisis. The FHA also predicts that ~1 million borrowers will buy or refinance with an FHA loan over the next year, most of whom will see reduced costs.
“We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers,” … “Homeownership is the way most middle class Americans build wealth and achieve financial security for themselves and their families. This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream.”
– Ed Golding, Principal Deputy Assistant Secretary for HUD’s Office of Housing.
The Takeaway
According to the FHA, annual mortgage insurance premiums will be lowered 25 basis points*, or one quarter of one percent, will come into effect on January 27th of this year. The FHA estimates that new rates could save, on average, $500 in 2017 alone for most FHA borrowers.
*For loans less than or equal to $625,500 with a maturity greater than 15 years. Please see the full report from HUD for more details of different loan scenarios and their actual MIP’s.
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Millionaire Tells Millennials To Buy A Home
CNN recently ran an article explaining why self-made millionaire David Bach has said,
“The fact is, you aren’t really in the game of building wealth until you own some real estate.”
In his book, “The Automatic Millionaire” Bach writes,
“As a renter, you can easily spend half a million dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing. Or you can buy a house and spend the same amount paying down a mortgage, and in the end wind up owning your own home free and clear!“
We have touched on this in the past. (see Buying Still Cheaper Than Renting, Renting vs Buying a Home and Accumulating Wealth, and Homeowner Average Net Worth 3,600% Higher Than Renter)
Bach has told CNBC that buying a home is “an escalator to wealth“.
“If millennials don’t buy a home, their chances of actually having any wealth in this country are little to none. The average homeowner to this day is 38 times wealthier than a renter.”
In regards to the idea of a starter home, Bach says,
“Oftentimes, buying your first home means you’re not buying your dream home. You’re just getting into the market.”
The Logic
Following David Bach’s logic is simple. We all have to live somewhere. We have to pay either rent or a mortgage. Over time, a mortgage can increase your net wealth over renting.
While buying your dream home would be nice, Bach says that the key is to just get into the market, and admits that your first home may not be your last.
The Takeaway
On average, family wealth of homeowners is dramatically higher than that of renters, and this divide has seen growth over time. David Bach, best-selling author and self-made millionaire, advises homeownership as the surest path to building wealth.
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